The Ministry of Road Transport and Highways (MoRTH) has released the third phase of Corporate Average Fuel Efficiency (CAFE) norms, known as CAFE III, for passenger cars classified under the M1 category of the Central Motor Vehicle Rules, 1989. The regulations will be in force from 1 April 2027 until 31 March 2032, and they prescribe a detailed framework for measuring, reporting and complying with fuel‑consumption standards across the automotive sector.
Scope and Timeline
The CAFE III notification applies to all manufacturers of M1‑category motor vehicles, which include most passenger cars sold in India. Under the rules, each manufacturer must ensure that its annual average actual fuel consumption does not exceed the prescribed standard for every fiscal year within the five‑year period. The specific fuel‑consumption targets are expressed as two parameters, “a” and “c”, for each assessment year:
- 2027‑28: a = 0.00158, c = 3.9960
- 2028‑29: a = 0.00152, c = 3.8600
- 2029‑30: a = 0.00148, c = 3.7585
- 2030‑31: a = 0.00139, c = 3.5313
- 2031‑32: a = 0.00131, c = 3.3273
Manufacturers must keep their actual average fuel consumption at or below the relevant standard for each fiscal year beginning 1 April 2027. The norms also define a compliance block structure: the first block covers three years (2027‑28 to 2029‑30) and the second block covers the remaining two years (2030‑31 to 2031‑32). Credits and debits that arise within a block can be carried forward only within that block; any unused credits lapse at the block’s end.
How Fuel Consumption Is Measured
Actual fuel consumption for each model will be derived from its type‑approved tailpipe carbon‑dioxide (CO₂) emissions, expressed in grams per kilometre (g CO₂/km). The Gazette specifies conversion multipliers that translate CO₂ emissions into litres per 100 km for conventional fuels, or kilograms per 100 km for compressed natural gas (CNG):
- Petrol: 0.04217 × CO₂ (L/100 km)
- Diesel: 0.03776 × CO₂ (L/100 km)
- LPG: 0.06150 × CO₂ (L/100 km)
- CNG: 0.03647 × CO₂ (kg/100 km)
In addition to these base calculations, the norms incorporate carbon‑neutrality factors that discount the declared tailpipe CO₂ for vehicles using biofuels. The discounts are:
- 8 % for ethanol‑blended petrol (E20 or higher), including strong and plug‑in hybrids
- 22.3 % for flex‑fuel ethanol vehicles
- 5 % or the CBG blending percentage notified by the Ministry of Petroleum and Natural Gas, whichever is higher, for CNG vehicles
- The actual biofuel blending percentage set by the Ministry of Petroleum and Natural Gas for diesel vehicles
Manufacturers may also claim a baseline of 1.0 g CO₂/km (equivalent to 0.0422 L/100 km) for each eligible technology deployed in a vehicle, up to an overall cap of 9.0 g CO₂/km (0.3795 L/100 km). The Gazette lists twelve such technologies, ranging from start‑stop systems and tyre‑pressure monitoring to solar‑reflective paint and PWM‑controlled radiator fans.
Credit, Debit and Compliance Mechanisms
The difference between a manufacturer’s actual average fuel consumption (P) and the applicable standard (T) is converted into either credits or debits. A credit equals (T − P) multiplied by the total number of vehicles sold, while a debit equals (P − T) multiplied by the total number of vehicles. These credits and debits are recorded in a manufacturer‑level passbook that can be carried forward within the current compliance block.
Manufacturers are permitted to trade credits with one another on mutually agreed terms, provided the transactions are reported to the Designated Agency. Additionally, manufacturers facing a debit balance may purchase credits from the Bureau of Energy Efficiency (BEE) under Rule 8 of the Energy Conservation (Compliance Enforcement) Rules, 2025. The purchase price per gram of CO₂/km escalates each year:
- 2027‑28: ₹2,500
- 2028‑29: ₹3,000
- 2029‑30: ₹3,500
- 2030‑31: ₹4,000
- 2031‑32: ₹4,500
All credit‑related activities—trading, buy‑outs and final passbook submissions—must occur within a 30‑day window from 1 October to 31 October each assessment year. The Designated Agency must forward the compiled data to the BEE by 30 September and submit the final passbook by 30 November.
Compliance is assessed annually, but any contravention is evaluated only at the end of a compliance block, after all credits have been settled. Non‑compliance is expressed in litres per 100 km, calculated as the total debit in g CO₂/km divided by the product of total sales in the block and the factor 23.7135.
From 1 April 2027, manufacturers must declare CO₂ performance for each model under both the Ministry’s own MIDC test procedure and the Worldwide Harmonized Light Vehicles Test Procedure (WLTP). State‑wise sales data must accompany the final compliance report each year. A separate conversion factor that aligns MIDC targets with WLTP will be notified by the Ministry of Power in consultation with the BEE.
Small‑volume manufacturers—defined as those producing or importing fewer than 1,000 eligible vehicles in a reporting period—are exempt from meeting the specific fuel‑consumption target. However, they remain obligated to report their annual average actual fuel consumption to the BEE.
The CAFE III framework thus combines stricter fuel‑efficiency targets with a flexible credit system that heavily favours battery electric vehicles (BEVs) and range‑extended electric vehicles, which receive a three‑times weightage (derogation factor of 3.0). Plug‑in hybrids and strong hybrids using flex‑fuel ethanol enjoy a factor of 2.5, while strong hybrids without ethanol receive 1.6 and flex‑fuel ethanol vehicles get 1.1. This tiered approach is designed to accelerate the shift toward electrified mobility while still offering pathways for conventional and hybrid technologies to improve their fuel‑efficiency performance.
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